Hello, ladies and gentlemen and welcome to Banco Santander Chile's First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. Please note that this call is being recorded. Following the presentation, there'll be a question-and-answer session. I will now hand over to Emiliano to begin the presentation.

Good morning, everyone. Welcome to Banco Santander Chile's First Quarter 2024 Results Webcast and Conference Call. This is Emiliano Muratore, CFO and I'm joined today by Cristian Vicuna, Chief of Strategic Planning and Investor Relations, and Carmen Gloria Silva, our Economist. The agenda for today is: first, Carmen Gloria will discuss the macro scenario; then Cristian Vicuna will review the strategy and results of the first quarter and guidance. And finally, we will have a Q&A session where we will also comment on the recent material facts that was published this morning. First, I want to express my gratitude for your presence at this quarterly meeting. Let's get down to business where I will discuss our performance during the first quarter and recent results. The macro conditions have continued its expected trend and the first installment of the FCIC approximately 54% of the position was paid on April the 1st. All this helped our margins and net income recovery in April, where we showed a back to normal net income of CLP71,000 with an ROE of over 20% on demand. We expect Central Bank of Chile to continue its rate reduction strategy, although at a lower pace for the latter part of the year. This positive impact on funding costs. We'll delve into the specific of our quarterly results in a moment. Now, I hand over to Carmen Gloria for our macro overview.

Thank you, Emiliano. Last year the economy had a significant adjustment reversing the balances accumulated from previous periods. By the end of 2023, we saw a modest rebound with GDP growing 0.2% for the year, surpassing previous estimates. However, domestic demand was weaker than anticipated suffering a decline of over 4% largely [Technical Difficulty] month of 2024, pushed by more external demand, better supply factors like the greater added value of power generation and a new rise in consumption. The pace of growth will likely slow down, but the initial increase means a GDP growth of around 2.8% in 2024 and above 2% in 2025, closing the gap with its potential level. This economic trend will be supported by a steady improvement in employment and more favorable financial conditions as monetary policy returns to normal and inflation slow [Technical Difficulty] 2023 finishing the year with a UF variation of 4.8% compared to more than 13% in 2022 due to lower domestic demand, tighter monetary policies and stable international prices. Although recent inflation news, price shocks and currency levels may put some pressure on local prices in the next month. We expect them to ease by the end of the year with a UF variation of 3.7%. We anticipate reaching the 3% level target by the second quarter of 2025. Regarding the exchange rate, we have seen a relevant peso appreciation from levels in February 2024 to close CLP1,000 per dollar to current level above CLP920 per dollar. Following the recovery of the copper prices, we estimate that this trend will continue during the year, allowing for lower inflationary pressures. Considering the growth outlook and inflation path, we expect the Central Bank to keep lowering the rates ending the year around 4.75% with a 50 basis point cut in the next…

Thank you, Carmen Gloria. This is Cristian Vicuna speaking. Good morning, everyone. Now I will proceed to review strategy and results. Turning our attention to Slide 8. Let me begin by reminding you of our commitment to our Chile First Strategy. We aspire to lead Chilean banking industry in terms of contribution to its various stakeholders. This strategy we have named Chile First with four pillars. The first two pillars focus on what we want to become and the second two pillars on how we want to do it. So first and foremost, we are engaged in a transformative journey towards becoming a digital bank with branches. Our transformation into a digital bank is not only about adopting the cutting edge technology but also about having a friendly physical presence through our innovative Work Cafe. These spaces are more than just places to interact with retail customers. They are dynamic hubs that promote connectivity for both customers and potential customers. With advanced technology and a commitment to excellent service, our Work Cafe are designed to redefine the banking experience. The medium term objective is to reach 5 million customers and 450,000 SME clients. Our second pillar is centered on providing specialized value-added services tailored to some business segments. Our commitment is to deliver premium transactional trade, foreign exchange, sustainable finance and advisory products and services ensuring our clients receive a top notch experience. Examples of this include our corporate investment bank, our specialized attention model for commercial banking, our Santander consumer business that offer car financing and Getnet, our acquiring business. In our third pillar, we are committed to fostering innovation and propelling growth by challenging status quo and creating new business opportunities. A good example of this is the disruption we incur in Chile with the four-part model when…

Thank you. We will now move to the question and answer section. [Operator Instructions] Our first question comes from Tito Labarta from Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning. Thank you for the call and taking my question. My question is just I guess on your long term ROE expectations, the 17% to 19%. I understand you have some issues this year, but just to go from the 15% to 17% that you're expecting in 2024 to the 17% to 19%. Just want to understand what the drivers will be for that. Would it be mostly further NIM expansion as you get all FCIC will be completely off your books next year. I mean, do you expect rates to come down further in 2025? How dependent will it be on inflation? Or do you expect any acceleration in loan growth? Just thinking of all the different moving parts. And what gives you comfort that the ROE will expand another 2% in 2025? Thank you.

Hello, Tito. Thank you for your question. Yeah, I mean, long term mean long term 2025 is it's longer than 2024, but maybe not long enough. But yes, answering your questions, I mean the two main drivers compared to 2024, first would be cost of risk. I mean this year, cost of risk will be above the long term and say sustainable level for us considering the economic cycle and the macro situation for this year. So going forward, that should be a tailwind for ROE. And the second, yes is NIM together with the FCIC fade out plus the normalization of the monetary conditions. I mean by that real rate conversion to low single digits, I mean from 2% or below, we are getting ready. We are getting there but not there yet. So those two factors along with the cost discipline we have always had plus the non-NII coming from fees to be a sustainable revenue source are the main levers to go from the 15% to 17% this year to the 17% to 19% long term.

Okay, perfect. Very clear. Thanks, Emiliano.

Thank you. Our next question comes from Neha Agarwala from HSBC. Please go ahead.

Hello, Neha, we can't hear you.

I think we lost, Neha. Perhaps we can take the question from her later. In the meantime, we have a question from Daniel Mora from Credicorp. Please go ahead. Your line is open.

Hi, good morning and thank you for the presentation. I have one question regarding NPLs. Right now Santander has the highest NPL compared to the relevant peers, the largest, biggest peers in Chile. I would like to understand what is the situation regarding the commercial NPL. For example, if you are seeing some specific sectors that is driving this increase in NPLs or the highest NPL compared to the industry level is more related to the low mix in that segment. And what will be the actions that you will take to improve NPLs going forward? Thank you so much.

Hi, Daniel. This is Cristian. It's true that our NPLs have increased in the last year in line in part with this situation of the economic cycle. If we review the evolution of our portfolio, we can see that the growth is mainly explained by two of the -- two increases about 40% in mortgage loans and the rest in commercial loans for corporate clients. So both of them have a strong collateral. And regarding the corporate loans, we identified two portfolios with a concentration of NPLs in single names. So mostly agro and some particular cases in real estate. Both portfolios have very good collaterals that lower the need of provisions and have already been considered in the impaired portfolio. So, actually we don't see this translating completely into cost of risk. So we see a very moderate impact in our cost of risk. But we are seeing these NPLs of some deterioration in this corporate loans that we already knew because we already have accounted to them in the impaired portfolio. So we expect the situation to start improving on the second half of the year mostly because of their employee -- employment figures and our return to growth of the country's GDP.

Perfect. Thank you so much. It means that the normalized figure of cost of risk for Santander with the economic situation improving, interest rates low and inflation control will be between 1, 1.1 or it could be a higher number. Thank you so much.

We're seeing something between 1.1 to 1.2 as normalize in the long run.

Perfect. Thank you so much.

Thank you. Our next question comes from Olavo Arthuzo from UBS. Please go ahead.

Yes, good morning, everybody. Thank you for taking my question. I have a very quick one related to your business. I noticed that you guys maintain and change the guidance of -- for the ROE expectations. But in this first quarter, we saw contraction in the retail CIB in the middle throughout basically those three main business units of the bank. So I just wanted to hear from you, what do you expect in terms of each of them in terms of recovery throughout the next quarterly results and which one of them do you see the most like important one for this ROE rebound? Thank you very much, guys.

Hello, Olavo. This is Emiliano. Thank you for your question. The first quarter performance in those business at the end has also a base comparison compared to what was the first quarter last year. In some cases it was a very strong year. But if you look at the sequential of those businesses, especially the revenue part and trying to leave aside regulatory effects like the interchange fee regulation on our retail business that basically got higher by the end of last year it's putting some pressure on the fee part. The trends on revenues, customer acquisition, customer satisfaction in general are still strong across the board. I mean we are in the corporate segments as Cristian was mentioning dealing with a higher cycle in terms of NPLs and we are dealing with that but we are not concerned considering the level of collateral and evolution of the macro on those segments. So we are still confident on having like a high single digit growth on each of the different segments because the macro, the macro conditions will be favorable first for consumer in terms of employment and GDP growth and the same for corporates with investment coming up from the low part of the bottom we had during this last two years.

Okay, that's great. Thank you very much, guys.

Thank you. Our next question comes from Carlos Gomez from HSBC. Please go ahead.

Hi, can you hear me?

Yes, Neha, we can hear you.

Hi. Sorry, my line got disconnected when you called for me, so I'm asking question on Carlos's line. Just a quick one. Could you -- I'm sorry, I missed in the initial comments, what would be the impact from the standardization of provisioning models for the consumer portfolio? And then did you see that impact in provisions? And very quickly on the loan growth. Could you give us some sense of how the different segments within the loan book are growing? Where should we see strongest growth this year and any particular segment that is lacking? Thank you so much.

Okay, so first on the standard provisioning framework for consumer book. I mean, we expect the impact to be around like CLP100,000 million for -- by the end of the year. I mean, as of the first quarter it was about like CLP85 billion. But if we forecast or try to project, what would be the situation by the end of the year that it's when the regulation is taking place, it's going to be around CLP100 billion. We are going to use the voluntary provisions to cover that. So we have today around CLP300 billion of voluntary provisions. About a third of that will be used to cover that. So we'll still have CLP200 billion remaining in voluntary provisions considering that no impact on cost of risk expected. I mean, neither impact on the coverage ratio considering that basically we have already put aside those provisioning -- those provisions and basically that will be what -- that will move from voluntary to say mandatory or statutory provisions. And in terms of loan growth. I mean, we see that the book in general are growing around the general guidance for the total loan book. I mean, long term investments and CapEx for corporates may take some time to rebound maybe later in the year, so that as a whole the segment could be slightly below the average -- mortgage is growing in line with the UF variation. I mean, so far we have seen growth slightly above UF variation. Going forward, we expect to be in line with inflation. That may put it between 4% to 5% growth in nominal pesos, maybe slightly below the average. And consumer is the one that with economic activity getting better, employment getting better and also the kind of leverage in households coming from a very low level of leverage out of the pandemic and the pension funds withdrawals and the fiscal helps people got from the government during the pandemic. Now we think that we can go converge to let's say more normal historical levels of leverage and that would imply the consumer book to grow maybe above the average of the total loan book.

Perfect. Thank you so much.

Thank you. The next question comes from Paulo from Banchile. Please go ahead.

Hi, good morning to everybody. I have a question regarding the guidance for NIM for the year of 3.2%. I would imagine that that means that for the second half of the year the NIM should go to levels of around 3.3%, 3.5%. And what is -- what would be the driver for this increase in NIM? I understand of course the FCIC is going out of the books for the second half of the year but given that most of those are invested in papers with a similar rate of return, I would imagine the impact of that is not that high. So just be able to give us some more details on that.

Yes. Hello Paulo, thank you for your questions. Yes I mean, we said like NIM for the year should be at least 3.2. Definitely that has an upward trend. Already in April we had an info for the month of around 3.5 and we expect to be around that for the second quarter or as a whole considering the CPI number we got from April. And so the main driver, as you said, I mean the FCIC maturity as itself is not so material in terms of NIM. It is arithmetically basically because the denominator of the ratio is falling by 10% already -- already fell 5% with the first majority and it will fell around another 5% in July. So basically the NIM as a ratio will go up close to 10% just because the denominator is falling. And -- but the main driver is like the rates going down and inflation staying for the year around 3.5%, 3.7% as UF variation and that will take, as you said, the NIM for the last part of the year, last quarter at 3.5% or higher in order to be for the full year at least at 3.2%. But the main driver is normalization of the monetary policy. We are today at 6.5% as monetary policy rate. We expect 50 basis points for the May meeting and then going forward cuts between 25 basis points to 50 basis points in the following meetings to close around 4.75%, 5% for the year. And that's basically the main driver for NIM going up with inflation, staying around the levels we are seeing for second quarter, maybe slightly below as a whole for the year, but closing at 3.7%, 3.8% UF variation for the year.

Perfect. Also, if I can, given that you have this exposure to interest rate, is that because your book has a higher gap in duration than other competitors in Chile? And for you guys to be able to reach the 17% to 19% long term ROEs, would that require increase in the loan book of commercial and consumer loans for the NIM to reach around 3.84% to get that ROE of 18%, is that correct?

So, yes. I mean, definitely, we don't know the details of other players but it's our sense that our sensitivity to interest rates is higher to theirs as we saw in the tightening cycle. And so we would expect to be more benefited in now in the relaxing or reducing cycle. Regarding loan growth for the long term ROE. Yes. I mean, if we look at long term GDP growth expectations in nominal terms for the economy, we think about around 5% and with that the historical multiplier, it's about one for loan growth. So in long term, we expect. Yes. Then to meet from high -- to high single-digit growth in the loan book in order to sustain the long term ROE and having the NIM in the high 3s. I mean, it's important to when we think about long term NIM and you try to look backwards to what we had in the past, it's also important to factor in that today the weight of the mortgage portfolio in the total loan book, it's much higher than used to be. So the 4.5s higher NIMs we had in the past with this composition on the loan book will be definitely harder to get and to be around 4% is something more reasonable to expect as a long term expectation.

Perfect. Thank you.

Thank you. The next question comes from Ernesto from Bank of America. Your line is open. Please go ahead.

Thank you. Hi, good morning Emiliano and Cristian. Thanks for the opportunity to ask questions. Most of my questions have been answered, so I just have a couple of them. The first one will be on your effective tax rate. You were guiding -- it should be normalizing to historical levels, but just wanted to double check what would be those levels? And my second question is on fintechs competition. Just wondering, how do you see as the most important fintechs in the country or who are the technology competitors that you have seen more aggressive. And also how do you see Santander Chile prepared for competition?

Hi Ernesto, this is Cristian. Thank you for the question. So our effective tax rate is actually some -- a couple of points below 25% when inflation is around 3%. So this year with a couple of basis points above 3%, we should be seeing one or two percentage points below that, so in the ballpark of 21%, 22%. So that's why we are expecting a normalization of the effective tax rate. Regarding fintechs, let me start on, then Emiliano will complement. In Chile actually, we are not seeing the presence of the large disruptive fintechs that are in place in other countries in the region like the new banks of this world in Brazil and Mexico. So we haven't seen the rise of this type of competitors locally. And actually there are specific competitors in areas like factoring or international remittances of money, but actually those are very specific. And what we are also seeing is some increased competition from fintechs within other traditional banks like the Credit Corp initiative of [indiscernible]. So actually what we're seeing more is an environment where the incumbents are accelerating the transformation to address this competition and this is where we've been leading the way with our life initiative and the Mas Lucas account. So we think we have been actually very, very successful in transforming ourselves to address potential new entrants. Having said that, all there to say that the most relevant fintech competition and if we can call them fintech, is Merca, Alpaca, those -- these are the guys that we are actually like seeing as a very relevant new entrance.

Excellent. Thank you very much. Yes.

Just to complement, on Cristian. Yes, I mean I would say that [indiscernible] is that the only regional relevant player that has entered the market and we feel really confident about our capabilities to compete with them and with any other potential entrant. When you see our digital footprints in individual SMEs together with our Getnet proposition in acquiring an impayments. And when you put that in the context of the overall universal banking we do, our whole ecosystem is quite unique. I mean customer satisfaction is good for us. I mean we live the market in that sense. So we don't discard further entrants. I mean, maybe because of the size of Chile, some of them hasn't -- haven't already entered, but they might enter in the future. But and we think that we are really in a good position to compete, to sustain our competitive positions, our current competitive positions and to grow further even with new entrants.

Excellent. Thank you very much.

Thank you. And we have a question from Alonso Aramburu from BTG. Please go ahead.

Yes. Hi, good morning and thank you for the call. Yeah, two questions on my end. The first one on expenses. I was wondering if you can comment if you potentially have other provisions, restructuring provisions like you had this quarter in the rest of the year. And my second question regarding your guidance on ROE of 15% to 17% for this year, you had 20% in April for you to hit roughly the middle point of that guidance, it seems like you need around 19% ROE for the rest of the year. Just wondering if that's in line with what you're thinking. Thank you.

Yes, I mean. Hello, Alonso. Thank you for your question. I mean, we don't expect any additional one off provisions as we had in the first quarter for the rest of the year. And regarding ROE. Yes, I mean, we still hope that the range between 15% to 17% so far, the mac evolution, the falling rates and the inflation not falling so much as we were expecting before made as yet to be reasonable to be in the mid of the -- of that range. And as you said, we would be around 19% for the rest of the year. How higher or lower compared to that midpoint will depend basically on how rates evolve going forward. We have the monetary policy meeting by the end of May where an additional cut is expected and I think it's reasonable to expect to be in the mid of that range and with that having that high double digits ROE for the remainder of the year.

Perfect. Thank you.

Okay, thank you. I'm not seeing any more questions, so perhaps I can hand back to Emiliano for closing remarks.

So thank you very much, everyone for taking the time to participate in today's call. We look forward to speaking with you again soon.

That concludes the call for today. Thank you and have a nice day.